Friday, 22 May 2020

The New Cold War is here.

After the fall of the Soviet Union, and the end of the Cold War, the world breathed a sigh of relief. Unfortunately while the West look forward to peace and economic growth, they ignored the rise of China as a world threat, and in fact helped them to this place of power. How did China do it?
Globalization and the expansion of trade created wealth in industrialised countries. To do so many industrialised countries used the enormous pool of cheap Chinese labor to produce goods. As a means to encourage Chinese participation the World Trade Organization (WTO) granted China the status of ‘developing country’ and with it came many privileges. Furthermore China manipulates its currency to obtain and maintain a competitive advantage.  Since the country is governed by an authoritative regime, there is complete control of the economy. Industries are managed and operated by the State, and production is dictated by the goals of the Chines Communist Party.
Given the complete control of the economy, most if not all, contracts between western corporations and Chinese producers must have the imprimatur of the government. Hence delegations from western governments often visit China to make deals, resulting in more concessions to get access to the closed Chinese market while giving more Chinese access to western markets.  These trade deals gave China greater access to western technology, and they also became one of the greatest infringers of copyrights. Chinese counterfeits flooded western markets and they also used the power of government control to increase ‘dumping’   of many products, mainly steel.
Furthermore, the obsession with climate change brought a new dimension to the reliance on Chinese production. In an attempt to reduce their ‘carbon footprint’ in their countries to placate the environmentalists, many countries increase their shift from home manufacturing to production in China. This shift did nothing to improve Carbon emissions, but in fact just transferred it to China, which at the same time received preferential treatment in new climate change treaties. They can pollute but the western world has to pay for their use of fossil fuels and increase in CO2 emissions. So what is the result of all these concessions?
First the trade deficits between China and the rest of the world grew. More significantly the trade deficit between the U.S and China got completely out of hand. The reliance on Chinese goods meant that China was exporting more than they were importing. They started to accumulate foreign currencies and in fact became the second largest holder of U.S debt. With that came monetary power and the authoritarian regime started to do something that was not contemplated, but in fact ignored by the West. China started to invest heavily in developing countries.  Africa and South America   became targets and their resources were acquired and exploited. These investments did not only provide monetary, but also political influence in these countries, and provided support for China’s influence on many global organizations like the WHO, UNESCO and the like. These expansion polices were ignored, as the west turned a blind eye and continued to focus on the war in the Middle East and the rise of terrorism.
All the while, China and its ally Russia were playing a different game. Russia under Putin and his new found wealth from oil and gas, and Xi entered into an alliance to engage in proxy wars. While using their ‘veto’ powers on the U.N Security Council, they covertly supported war in different parts of the world. As Obama, obsessed with appeasement took a back seat, the new Cold War allies extended their involvement in the Middle East, and supported Iran in the failed Nuclear deal. China used its proximity and long-time relationship with North Korea to support the regime, and in fact encouraged Kim Jung Un to become a thorn in Trump’s administration. In the meantime China started building islands in international waters in the South China Sea and built bases which extended its military reach in the region.
Another factor for the growing Chinese geopolitical power is the use of Chinese immigrants and students in many western countries. Many immigrants to countries like Canada still have ties with the communist regime. As they invested in the western world they also gained influence in political and corporate arenas. Many huge corporations are now either controlled or are partners with Chinese investors who still report to the government. Huawei is one example, and the continued relationships between large tech companies and China is a growing threat.
 In Canada, the increasingly worrisome Trudeau government and his relationship with China, is cause for concern.  Not only is the inability for this government to confront the Chinese government, but it is the constant acceptance of the acquisition of resource and technology companies by Chinese entities that should raise a red flag.  China has acquired many Canadian companies for example TMAC Resources, Continental Gold, Asia Pacific marine Container, Nexen etc.  It is not the investment that we should be worried about, it is the investor. With an obsession to gain a seat on the U.N Security Council, Trudeau has virtually given up any semblance of protecting Canadian sovereignty.
In the United States, it is apparent that China has not only got a foothold in many universities but also in many tech companies. Google and Apple are so reliant on business on mainland China that they are reluctant to support Trump’s policy of re-alignment with the belligerent and combative Chines regime.
Trump has been criticized for many things, one of which I did not support- the use of tariffs to bring China to the negotiating table, in retrospect he was right. However, it seems that the Covid-19 pandemic has given him the unfortunate opportunity to gloat. Or was the pandemic a means of Chinese retaliation?  On the other hand, China has been exposed and placed itself in a defensive position that nobody could have visualized some 18 months ago.  As more details are coming out about China’s role in the pandemic, western countries and many smaller developing countries are reconsidering their relationship   vis-à-vis the autocratic regime and leader for life Xi.
China with the blind complicity of the western world has been preparing itself to dominate the world as it builds itself into a supreme   military power. They have stolen and continue to steal technology; they have coerced global organizations through bribes and massive funding of smaller countries to get votes at the international levels. If there is one thing positive about Covid-19, it is that it was able to expose the Chinese duplicity. Is the world going to recognize the rise of China as a threat, or are we going to coalescence around a dislike for Trump and continue on our merry way and increase our dependency on trade with China?  The west should bring back their manufacturing home or expand into South Korea, India and other free Asian countries.
The new Cold War is here, make no mistake about it. Russia will align itself with China. To counteract this dangerous alliance, NATO countries should expand their membership or the world will face a greater problem, than terrorism or climate change – economic collapse.

Monday, 11 May 2020

The Upcoming Cold War

After World War II, military tensions escalated between the United Sates and the Western Bloc, and powers in the alliance of the Warsaw Pact led by the Soviet Union and later joined by China. This conflict brought the world close to a nuclear war, but fortunately ended with the collapse of the Soviet Union on December 26, 1991. However Covid-19 has open Pandora’s Box and we face a new cold war.
China has always aspired to be a world leader. After the Mao years the Chinese Communist Party (CCP) adopted a different strategy and opened its economy, while keeping a very strong hand on the political ideology and autocracy. The western world believed that opening trade with China would allow the regime to soften its stance and allow political freedom. Far from being the case China has now reached the point of being the next protagonist in a new Cold War.
In the late nineties China was still considered as ‘a developing country’ by the World Trade Organization (WTO). This status gave China several trade exemptions and also funding from western countries including Canada.  For years China has used these privileges to bolster its coffers. Western countries used China’s massive cheap workforce to produce many goods. To the extent that China became the major supplier of many manufacturing products, including pharmaceuticals. The rest of the industrialized world concerned themselves with climate change, and transferred many of their manufacturing activities to China to alleviate themselves of their so-called carbon foot print. These decisions caused unintended consequences, including massive trade deficits and large debts resulting in the U.S. owing $1.09 trillion to China. 
An autocratic Chinese government put this new found wealth to endear themselves in Africa and other developing countries. Gaining footholds in these countries and exploiting their natural resources. China also started funding international organizations and gained their confidence. In addition they build their military budget and have now the third if not second largest military force in the world. While the Obama administration was appeasing the Middle East and Iran, China was building artificial islands in the China Sea expanding its reach into international waters.
Covid-19 the virus which has gripped the entire world in a pandemic, whether it was manufactured or came from a wet market originated in Wuhan, China. There are conspiracy theories about the Chinese handling of the virus; Germany's Der Spiegel published the allegations, citing intelligence from the country's Federal Intelligence Service, known as the 'Bundesnachrichtendienst' (BND). According to the BND: 'On January 21, China's leader Xi Jinping asked WHO chief Tedros Adhanom Ghebreyesus to hold back information about a human-to-human transmission and to delay a pandemic warning. It is also reported that China cornered the market for surgical masks and personal protective equipment (PPE), while selling defective baldy needed equipment to the rest of the world .The devastating aftermath of the pandemic will still have to be measured in months to come. From and economic point of view the damage will be enormous. I believe that 20% of businesses will never again operate the same way. While up to 25% of the workforce may have to find employ in alternative and new jobs.
Hate or love President Donald Trump, in retrospect his stance against China has been correct. While I still do not like tariffs, Trump was able to get new trade deals through the imposition of tariffs against Chinese goods. I also believe, may be wrongly, that Covid-19 and its handling by the Chinese government may have been retaliation against Trump for winning concessions on trade. China has been waging a silent cold war against the Western world for quite some time, but politicians have been blind to this subterfuge. The handling of many of the world’s problems through organizations like the United Nations, where China has a veto has in fact made things worse. The Chinese philosophy is based on long term strategy and they have waited until now when their leader Xi Jinping, has been able to garner supreme leader status to flex their muscle.
The real problem is: what are Western Nations going to do about the rise of China? Unfortunately, despite the clear indication of China’s strategy to supplant the U.S as leader of the world, the hate for Trump is going to prevent a strong response. Take Canada for example; Trudeau who suffers from a huge inferiority complex vis-a-vis the U.S. more specifically Trump, is actually funding China and the WHO. His obsession with getting a seat on the U.N Security Council, where he believes he will have more power, blinds him from the geopolitical realities that face us.
The global economic damage caused by Covid-19 should not be used to promote socialist and environmental agendas, which in some form got us to where we are today. In fact it should be used to reform many of our global institutions and the way that we trade with each other. We can no longer rely on one major supplier in the supply chain. We must bring back certain industries from China, and use other friendlier sources like South Korea and India. The costs incurred could be easily recouped by Trump refusing to repay part of the debt owed to China. Is it legal for Trump to do so? I don’t know, but what is really important is for the U.S and its NATO allies, Australia, New Zealand, Japan as well as developing nations like India and South Korea to work together against China and its ally Russia, in a new Cold War that will not be restricted to earth but extend into space.

Monday, 4 May 2020

Mayors claiming poverty without trying to innovate

Much of the expected revival of the economy has been squashed by Covid-19, a collapse of oil prices due to the Russia/ Saudi Arabia skirmish , and our own federal government’s environmental agenda. These combined cataclysms have forced governments to shift much of their ballyhooed conservative fiscal agenda to the left. We now predict large deficits and massive debts to be the norm for some time to come. Much of the decisions cannot just be blamed on the governments as they had to adjust to counteract the effects of these increasing losses in revenue and increases in costs.

Unfortunately lower levels of government have had to face the same problems; however municipalities have not dealt with the loss in property tax revenues very well. Calgary, for example has continued to raise taxes, and has been reluctant to cut spending. There are some fundamental issues to be considered; in Calgary the collapse of the oil industry has already affected the real estate industry and the property tax base. For years the Institute for Public Sector Accountability (IPSA) has proposed that the Market Value Assessment system be abolished for a more equitable system. One based on actual sale/purchase price of properties inflated annually by the CPI, however this will require the Province to make the change, and so far there seems to be no movement towards even reviewing the current system.
Municipalities are claiming to have millions of dollars in lost revenues and require at least $10B from higher levels of government.  IPSA, and other organizations have argued and proved that municipalities do not have a revenue problem but rather a substantial spending problem. The issue is twofold:
  • One most citizens do not understand the difference between a Budget and an Annual Report. A budget is a projection and wish list for future expenditure, which is then used to determine the rate of taxation to raise revenues. An annual report is the financial result which uses the Public Sector Accounting Standards (PSAS).
  • Two the problem is that municipal budgets display their investments in capital projects (sewers, buildings, etc, ) on  a cash basis, while annual reports amortize the costs of capital project over years.
So any comparison of budgets on PSAS basis will show that cities undershoot their budgeted spending and hence have enormous surpluses. In fact a 2019 C.D. Howe Institute analysis of 31 municipalities, including show that these municipalities had a total budget surplus of $18B in 2018.
The following are some of the accumulated surpluses of Toronto $1.4B (2018), Edmonton $1,0B (2018), Calgary $1.3B (2019) and Vancouver $3.0B (2019).
So while politicians claim poverty, it is citizens that should demand clarity, and accountability. In effect instead of the Municipal Minister of Alberta, and British Columbia allowing for the budgeting of deficits, they should be mandating a new approach to budgeting, including Zero Base Budgets and the use of PSAS for both budgets and annual financial statements
As for our Councillors they must recognize that using budget deficits and hiding behind a budget vote to cover their inability to cuts costs will not prevent taxes to go up. It is their vote to increase taxes that causes the problem.
It is said that necessity is the mother of invention. Every industry is innovating to deliver services during this crisis, but governments have continued in their merry way of spending rather than cutting costs and innovate. Covid-19 may have provided the opportunity to review how Municipalities budget and account for their finances, we just need political will and courage to make the change

Wednesday, 15 April 2020

Life and Wealth after Covid-19

For most of us Covid-19 is an unprecedented catastrophe. As the incidence of death starts to plateau, we are starting to look at what the future will look like. For many and most of us life as we knew it will never be the same. It is time for us to learn, adapt, or perish, if we have another pandemic or global crisis.
 First let us thank all those medical, health practitioners, and first responders who have given their time to save lives, the front line in grocery stores, truckers and food providers who keep the supply chain moving.  Times of crisis are great educators. Out of gloom and doom the human race has come out and progressed, this time is no different if we learn from our mistakes. Governments around the world have ignored the severity of the pandemic because they were misled by the Chinese government who did not advise the world about the outbreak of the virus. Some governments were not prepared for the extent to which the spread of virus would affect their citizens. The World Health Organization (WHO) is increasingly being blamed for their inability or lack of transparency in handling the whole disaster. As a result the number of cases and deaths has risen to a level never seen before since the Spanish Flu pandemic in 1918.
 Could we have handled the situation better? Yes and no. If countries had closed their borders earlier there could have been a mitigation of the number of infections, but the fear of offending people stopped many governments from closing their borders. Since there was no scientific diagnosis of the virus, very little was known how it spread and how and who it affected. Testing which is touted as the major solution to manage the outbreak was not available, so it would have been difficult to stop the infection anyway. What we learned was that self-isolation, and distancing were perhaps the best ways to combat the infection on a large scale until a cure or vaccine is found. Unfortunately the rise in deaths was among the most vulnerable including the elderly, those affected by diabetes, pulmonary, heart and other medical conditions. In Canada a significant number of the deaths occur among elderly patients in long-term care homes. But the left could not stop itself from using the race card to win political points when it was found that minorities in the U.S. were affected in larger numbers. However they ignored the facts that minorities live in closer quarters in high density areas, are more prone to heart and diabetes due to diet and poverty, and that the areas most affected had a larger population of homeless people and illegal immigrants in sanctuary cities. British Columbia, Alberta, Toronto and Quebec were the airports which were still functioning, and allowed passengers from other countries to enter the country, with minimal or no testing available.
As governments realized the enormity of the pandemic, citizens had to adapt to a new reality. Self-distancing closed everything. No more crowding, as all gatherings were suspended, and we have now entered a life with no contact and isolation, with no sporting and entertainment events. The work place as we know it has changed, many work from home, schools have closed and classes are delivered online. Restaurants and eateries are now operating online with a delivery service. The result has been a collapse of the economy and the realization that globalism may have failed us. Governments are pouring money into the economy to ward off a major depression. Trillions of dollars are being printed and the stock market has dropped to record lows. The problem is once the pandemic is over; the large debts will have to be repaid. It is well and good to see government pour money to stave off a major collapse of the economy, and provide support for all the people who have lost their jobs, but the fact remains that the recovery may produce a world totally different to the one we have known before the pandemic. How long will the lockdown last? Can we survive for very long with a completely closed economy?
We cannot afford to open the economy too quickly, because we may face a second wave, due to false negative testing which could be even worse. Perish the thought that our political leaders decide that their power base is being threatened and that they require more powers to manage the situation. It is already apparent that global organizations like the WHO, IMF, and the U.N etc. have failed us during this cataclysm. All powers granted in these difficult times should have a sunset clause. However there are many who believe that this is an opportunity to organize a World Government. As Trump said, and now reported by MI6, it is becoming apparent that the WHO formulated a ‘China centric’ policy to advise the world of the pandemic. They were late to inform the world about the extent and severity of the virus. The WHO did not provide true data from China the country of origin of Covid-19, despite red flags from Chinese scientists as early as November of 2019. Can we really believe that China with the size of its population has only some 4,000 deaths compared to the U.S which may have 25,000 deaths?
While Trump may be blamed for his nationalist positions, it is now clear that he may have been right in his opposition to the continued trade practices with China. There is no doubt that China has been practicing a policy to see them dominate the world within the next decade. Unfortunately, the western world which has been blind to the real threat posed by China has continued to rely on cheap Chinese labor for the production of many of our essentials. The reliance and dependence on Chinese products, including pharmaceuticals has exposed the world to the reality that it is time for industrialised countries to bring back their manufacturing industries and start producing many of the essentials at home. The focus of western nations and an obsession with climate change prevented many of them from being prepared for a pandemic. The medical profession was exposed because many countries did not have a strategy to deal with a pandemic. Too many countries did not have enough ventilators, masks and personal protective equipment (PPE). Fortunately due to entrepreneurship and the endeavor of many private businesses (some 5,000 in Canada alone), the vacuum is gradually being filled and innovation in the private sector came to the rescue.
All the changes made during the crisis have also provided us with new opportunities. We may well see a world which will restructure the way that we live, work and play, where technology used to connect us will definitely expand our service delivery from health through tel-med and education increasingly using the internet to teach. We may finally see the promises that were supposed to be delivered by new technologies finally take place. More time working at home rather than in big box offices. Less government dependence on large labor forces as a result of restructuring, because during the crisis, it showed that the need for large bureaucracies did not stop the world from continuing to function, albeit at a slower pace. Re-training will be needed to absorb many who in the workforce would have lost their jobs.
Prior to the declaration of the pandemic the U.S. economy was in good shape. Despite the WTO’s claims that we may see 32% shrinkage in the global trade, the IMF predicts shrinkage of 3% in the global GDP for 2020.  I believe the economy will recover in a U shape rather that the Trump touted V shape. It will take some time for life to come back to normality. Wealth after Covid-19 will depend on how much we grow national economies not just global economy. It is quite apparent that much of our future will depend on the ‘invisible hand’ as described by Adam Smith, and not necessarily on the expansion of government. Government debt will have to be repaid; only growth in the economy will spare us the huge taxes needed to repay the largess of government during the crisis. Financial help to large corporations should be limited to loans and a share in equity position by the government. Once the economy is restored governments could recuperate their investment through the sale of their equity shares. Any gains from these investments should be returned to the public in the form of tax reductions and not used to further political legacies. A massive investment in infrastructure delivered through Private/ Public partnerships will give an enormous boost to the economy. SMEs are the backbone of the Canadian economy, and we must ensure that we transform our economy and rely less on the traditional industries that have made Canada what we are today. It is not the role of the government to diversify the economy, the private sector, with fewer regulations, will take us to the next frontline.
As for how we live with each other, we may have to re-consider high density living. While we ponder whether the handshake will be a past tradition, it is really important that we regain control of our freedoms and not allow governments to further their grip on powers acquired during the crisis.
A few important changes will have to be made to Canada’s geopolitical agenda. Foreign aid to gain votes to acquire a seat at the U.N for example must be curtailed. Charity should begin at home, and essential supplies should be used for national purposes before being sent to foreign countries. Progressive governments should come to the realization that climate change is not the existential threat faced by humanity, but rather that virus and pandemic are the more pressing dangers. That will need a re-assessment of the oil and gas politics. Covid-19 has exposed the Trudeau government’s deficiencies. Coupled with a Russia/Saudi Arabia oil skirmish, the price of oil has collapsed and has affected the Alberta economy even more, hence the economy of the country. Furthermore the pandemic has exposed our demand for PPE and other medical supplies and our dependence on plastics. The source of plastic, it must be remembered, is OIL.
The world’s relationship with China will have to be severely reassessed as a result of this pandemic. That will include not only trade but the military expansion in the China Sea and its influence in other parts of the world, namely Africa and the Middle East. Trade will change and the role of WTO, IMF, the U.N and other global organizations will have to be swotted.
Covid-19 may well be the catalyst for the world to take a breath and re-assess what is important and how we regain control of our lives and wealth, without too much reliance on a One World Government or organizations that have failed us in this time of crisis. It is not a call for a retrenchment into nationalism, but rather a serious look at collaboration and not abdication and loss of sovereignty. We will come out of this crisis, and the world will be better for it.